-  We maintain our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM10.30. This is based on an unchanged ROE of 14.2% FY13F, leading to fair P/BV at 1.9x.

-  Maybank had recently announced that it has disposed of 5,065.38mil ordinary shares in BII, representing approximately 9% of the issued and paid-up share capital of BII, to a third party investor.

-  The disposal was completed on 19 June 2013. Maybank said it has also entered into a commercial arrangement where the economic exposure resulting from the disposal is being retained. Hence, the disposal will not result in any material financial impact to the Group.

-  Maybank added that, with the completion of the disposal, the free float of BII shares has increased from around 2.7% to 11.7% of the issued and paid-up share capital of BII.

-  Maybank said the disposal was undertaken to ensure compliance with the Otoritas Jasa Keuangan (OJK)'s mandatory sell down requirement under the OJK Regulation No. IX.H.1 in respect of Maybank's acquisition of BII in 2008. The mandatory sell down requirements seek to achieve a 20% public float in BII. Maybank is applying for an extension to comply with the sell down requirement to OJK in respect of the remaining 8.3% stake in BII.

-  We are surprised by the timing of Maybank’s disposal of the 9% stake, given that BII’s share price has been low at circa Rp360/share. Earlier, Maybank has been granted extensions by the stock exchange regulator Bapepam for the selldown requirement to re-float 20% of BII, on grounds that the share price of BII was below the Rp510 tender offer price, which would have led to a loss for Maybank.

-  We estimate Maybank’s cost of BII at Rp453/share on average, with the tender offer portion being the highest at Rp510. If we are to reflect the provision for impairment of goodwill of RM1.6bil already provided for by Maybank in relation to the acquisition of BII in FY09, we estimate the average cost would be Rp360/share.

-  We estimate that if the BII sale was done at current market price or up to Rp510, there is minimal gain from the sale. Maintain HOLD on Maybank.

Source: AmeSecurities